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GST on Two-wheeler Insurance: Impact and Rate Changes

Team AckoJan 17, 2024

The Goods and Services Tax (GST) was implemented to unify multiple indirect tax rates. As many as 17 central and state taxes were brought under a single tax regime through the GST. Since motor insurance is classified under the services category, GST is applicable on vehicle insurance premiums. Read on to learn about the impact of GST on two-wheeler insurance and the current GST rate for bike insurance.

Contents

GST on Two-wheeler Insurance in India
Effect of GST on Bike Insurance Market
GST and Insurance
How GST on Two-wheeler Insurance Impact Customers?
Bike Insurance Policy Rate After GST
Can you add a GST number to your bike insurance policy?
Takeaway
Frequently Asked Questions

GST on Two-wheeler Insurance in India

Prior to the GST era, the tax structure on two wheeler insurance included the Excise Duty, Value Added Tax (VAT), Central Sales Tax (CST), etc., and the tax rate for two-wheeler insurance was 15%.

Under the new tax regime, the GST rates for the sale of goods and services are broken into five different rates (0%, 5%, 12%, 18%, and 28%). As the bike or two-wheeler insurance falls under the services category, the GST on bike insurance premium is 18%.

Effect of GST on Bike Insurance Market

The GST council, which regulates the tax rates for the sale of goods and services in India, has set the GST for two-wheeler insurance at 18%. Compared to the old tax rate of 15%, there is an increase of 3%. With an increase in the tax rate, the two-wheeler insurance premium slightly increases.

However, digital insurers such as ACKO follow the direct-to-customer or no-commission model and offer insurance entirely on the online platform. With a 100% digital infrastructure and no-commission model, there is a reduction in operating costs. The savings are then passed on to you through low-cost bike insurance plans, mitigating the hike in the insurance premium due to the increase in the tax rate.

Also, read: Bike Insurance premium calculator

GST and Insurance

There are various types of insurance policies in India. They are classified as below.

Life Insurance: Under this type of insurance policy, there is a further classification as Endowment Policies, Term Insurance Policies, Unit Linked Policies, Money Back Policies, Whole Life Policies, and Annuity/Pension Policies.
General Insurance: Under this type of insurance policy, it is further divided into Car Insurance, Two-wheeler Insurance, Health Insurance, Home Insurance, Marine Insurance, Commercial Insurance, Travel Insurance, etc.

While the insurance premium is exempted from income tax, you need to pay tax (GST) towards the payment of premiums as motor insurance is classified under the services category and comes under the ambit of GST.

How GST on Two-wheeler Insurance Impact Customers?

Here is an example to understand how GST on bike insurance impacts the premium. Pre-GST

Bike Insurance Premium	Pre-GST Rate	Tax Amount	Total Premium
Rs. 1,000	15%	Rs. 150	Rs. 1,150

GST

Bike Insurance Premium	GST Rate	Tax Amount	Total Premium
Rs. 1,000	18%	Rs. 180	Rs. 1,180

GST Impact on Two-wheeler Industry

While the GST on two-wheeler insurance has slightly increased the premium, the GST on the sale of two-wheelers is quite different. Before the GST was implemented, the tax rate on the sale of two-wheelers stood at 30%. However, with the GST, the tax rates are different for two-wheelers with an engine capacity of less than 350cc and those above 350cc.

Here is a table showing the GST on the sale of two-wheelers in India compared to the previous tax structure.

Engine Capacity	Prior to GST	After GST	Difference
Less than 350cc	30%	28%	Down by 2%
Above 350cc	30%	31% (28% + 3% Cess)	Up by 1%

GST Rate on Electric Bikes

The GST rate on electric two-wheelers or electric vehicles stood at 12%; however, the GST council slashed the rate to 5% effective August 1, 2019.

GST on Used/Old Bikes

The GST rate on second-hand bikes or two-wheelers was 28%, the same as new vehicles; however, it has been slashed to 12%. The cess that was levied in the previous GST rate has been removed as well.

Bike Insurance Policy Rate After GST

As the two-wheeler insurance policy is classified under the services category, the GST rate for the bike insurance policy is mentioned in the table below.

Insurance Policy	Tax Rate Prior to GST	After GST
Bike Insurance	15%	18%

Can you add a GST number to your bike insurance policy?

Many of you must be wondering if you can add a GST number to your bike insurance policy. It is a unique 15 digit number issued when someone registers themselves under the Goods and Service Tax. It is based on the Permanent Account Number (PAN) of the person, and it is used primarily for filing a GST return.

Entrepreneurs can obtain a GST number for their business. Since these entrepreneurs are eligible taxpayers, they can claim returns for the GST paid. To add a GST number to your bike, contact the insurer’s customer service to update the number on your 2-wheeler insurance policy.

Takeaway

Despite the slight increase in the tax rate on two-wheeler insurance, it is vital to insure your two-wheeler with the Comprehensive Insurance Policy, as it offers broader coverage for your vehicle. Apart from coverage for third party bike liabilities, the Comprehensive Policy also covers damages or losses to the insured bike through the Own Damage insurance.

ACKO offers affordable bike insurance premiums in the market, along with a superior online experience that helps you buy or renew insurance policies instantly without any paperwork. Even raising claims is easier compared to the traditional method. So, do not hesitate to insure your vehicle with ACKO as it offers low-cost bike insurance plans so that you are compensated for the hike in the tax component of the insurance premium.

Frequently Asked Questions

Here are some of the commonly asked questions about GST on two-wheeler insurance.

Is GST beneficial for two-wheeler insurance buyers?

While the GST has increased the two-wheeler insurance premium compared to the previous tax structure (Excise Duty, VAT, CST, etc.), you can negate the increase by opting for low-cost two-wheeler insurance provided by digital-first insurers such as ACKO. With an ‘online-only approach and no-commission model, the operating cost is lower. Hence, ACKO can design affordable bike insurance policies, thereby negating the increase in the premium due to the higher tax.

What is the impact of GST on bike insurance?

As per the pre-GST era, the tax on bike insurance stood at 15%. However, under the new tax regime (GST), the tax on bike insurance is 18%. Hence, the impact of GST on two-wheeler insurance is an increase of 3%.